FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Dropping Unprofitable Division Based on the following analysis of last year's operations of Bingham, Inc., a financial vice president of the company believes that the firm's total net income could be increased by $700,000 if its engineering division were discontinued. (Amounts are given in thousands of dollars.) All Other Engineering Last year results Totals Divisions Division Sales $17,250 $12,000 $5,250 Cost of services: Variable (6,140) (3,900) (2,240) Fixed (3,360) (2,100) (1,260) Gross profit 7,750 6,000 1,750 Operating expenses: Variable (4,750) (3,000) (1,750) Fixed (2,500) (1,800) (700) Net income (loss) $500 $1,200 $(700) a. Assuming that total fixed costs and expenses would not be affected by discontinuing the engineering division, is the financial vice president's analysis correct? No Prepare a differential analysis to support your answer. Discontinuance of Engineering Division Effect on net income (in thousands) Increase (decrease) in revenue (Increase) decrease in cost or expense Cost of services Operating expenses Net increase (decrease) in net income $ Dollars 0 x 0 x 0 % 0
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Transcribed Image Text:Dropping Unprofitable Division Based on the following analysis of last year's operations of Bingham, Inc., a financial vice president of the company believes that the firm's total net income could be increased by $700,000 if its engineering division were discontinued. (Amounts are given in thousands of dollars.) All Other Engineering Last year results Totals Divisions Division Sales $17,250 $12,000 $5,250 Cost of services: Variable (6,140) (3,900) (2,240) Fixed (3,360) (2,100) (1,260) Gross profit 7,750 6,000 1,750 Operating expenses: Variable (4,750) (3,000) (1,750) Fixed (2,500) (1,800) (700) Net income (loss) $500 $1,200 $(700) a. Assuming that total fixed costs and expenses would not be affected by discontinuing the engineering division, is the financial vice president's analysis correct? No Prepare a differential analysis to support your answer. Discontinuance of Engineering Division Effect on net income (in thousands) Increase (decrease) in revenue (Increase) decrease in cost or expense Cost of services Operating expenses Net increase (decrease) in net income $ Dollars 0 x 0 x 0 % 0
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